I agree. This is a spectacular mistake. Anthropic has the best "AI" on the planet. Anthropic can spin up a giant "Claude" and plan rings around the Pentagon. DoD better get used to losing that fight.
Also, Gemini with DoD money and DoD direction is likely to result in an AI that works very well for the DoD but significantly less well for other things, especially if your use case benefits from some guardrails (and most use cases do, because you rarely want AI to just do whatever it fancies.)